Retail investors will from September be able to buy up to $10,000 of equity in their favourite business ideas, after crowd-sourced funding legislation passed the Senate.

The legislation will allow unlisted public companies with annual turnover or gross assets of up to $25 million to advertise their business plans on licensed crowdfunding portals, and raise up to $5 million a year to carry them out. Investors can put up to $10,000 a year each into an unlimited number of ideas.

A 48-hour cooling off period had applied to the legislation which passed the House of Representatives in February, however the Labor Opposition successfully amended this to five days, with support from the Greens and the Nick Xenophon Team.

However Labor was unsuccessful in a bid to make the legislation immediately apply to proprietary companies, a structure used by around 99 per cent of Australian businesses.

Treasurer Scott Morrison previously flagged that amendments to include proprietary companies would be tabled later in 2017, and lobby group FinTech Australia confirmed it was assisting the Government on this. It is unclear whether this will happen before the bill becomes effective, which is six months after it gains royal assent.

Advertisement

Shadow minister for the digital economy, Ed Husic, called the crowd-sourced funding legislation "Sco-Mo's dodo", in reference to the Treasurer, because it would be "extinct within the year".

The creation of a new type of non-public company under the Corporations Act, that enshrines some of these allowances, was among the suggestions in submissions to a Senate Enquiry into crowd-sourced equity funding last year.

The imposition of a cooling-off period went against the principle of crowd-sourced equity funding as an "open and lit" market, said Jonny Wilkinson, co-founder of one of the portals which will seek to be licensed under the new regime, Equitise.

Ed Husic has questioned FinTech Australia's support for the crowdfunding bill he calls "ScoMo's dodo", as it will be extinct within a year when rewritten to include proprietary companies. Andrew Meares

The five-day period made the market more open to potential manipulation, such as competitors to the equity issuers pledging and then withdrawing a funding offer at the last minute, he said.

Overall the legislation was a "fantastic" liberalisation of Australia's early stage markets, Wilkinson said, claiming Equitise had been forced to turn away "hundreds" of businesses looking to raise funds this way over the last two years.

The founder of an 'Uber for sex workers' app called Rendevu, Reuben Coppa, said the legislation provided new funding avenues for small businesses with a resonant story to tell.

"The passage of this bill provides a more accessible medium for 'mum and dad' investors to support less traditional industries," Mr Coppa said.

Crowdfunding portals like VentureCrowd and Equitise have previously been available only to "sophisticated investors" with more than $2.5 million of assets outside the family home or income above $250,000 a year.

However VentureCrowd would probably stick to that market while ever the retail equity crowdfunding regime excluded proprietary companies, and did not allow for the aggregation of small holdings through managed investment schemes.

"Venture capitalists for one are not going to touch any company that's got 100-odd separate investors on the register, it's just not worth the hassle for them," said Jeremy Colless, managing partner at Artesian Capital Management which runs VentureCrowd.

Expert advice for getting ahead in the new world of work left by COVID-19

Michael Bailey writes on entrepreneurship and the arts. He is also responsible for the Financial Review's Rich Lists. He is based in Sydney. Connect with Michael on Twitter. Email Michael at m.bailey@afr.com

More than 10,000 people poured into the nation's capital on the ninth day of protests over police brutality, but what awaited them was a city that no longer felt as if it was being occupied by its own country's military.